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Source link: http://archive.mises.org/8635/supply-side-economics-vs-austrian-economics-just-before-recession/

Supply Side Economics vs. Austrian Economics just before recession

September 28, 2008 by

Poor Arthur Laffer. I bet he now has a Laffer-curve-like face because of the necessity to give back this penny. Or maybe not, since the penny already lost much of its value?

{ 25 comments }

Neal W. September 28, 2008 at 2:44 pm

I wonder if Art Lafer (sp?) will ever show his face again.

Oil Shock September 28, 2008 at 4:52 pm
Jean September 28, 2008 at 5:21 pm

I’m afraid that Mr. Schiff will only accept gold for payment of the bet. Arthur Laffer is a joke!!

Inquisitor September 28, 2008 at 6:48 pm

Is Laffer delusional? He is a spent force. Schiff missed opportunities to catch him out on all the technical errors he made though.

Gaurav Ahuja September 28, 2008 at 7:15 pm

By the way, Peter Schiff does not subscribe to Austrian economics(from what I could tell). He may sound similar in certain ways, but I have never read or heard him state that he is an Austrian. He didn’t seem to sound like that on international trade deficits. He seems to think Americans buying more from non-Americans is something inherently bad for the American economy.

javier September 28, 2008 at 7:43 pm

Gaurav,
Seeing that he was ron paul’s economic advisor and the reading list on his website includes murray rothbard and henry hazlitt, I would say he is pretty close.

David C September 28, 2008 at 8:59 pm

So he says the “US economy has never been in better shape”, well great, lets skip the 700 billion dollar bailout then.

Danny September 28, 2008 at 9:45 pm

This would be hilarious if the consequences weren’t so serious. If CNBC and the like would be honest, they would stop inviting the jokers on the show — the current situation lays wide open the lies of these “experts.” It would be a good public service for them to review these on the air.

Wait, back to reality…

Oil Shock September 28, 2008 at 9:51 pm

Here is what wikipedia says about Peter

Peter Schiff is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut. Peter adheres to the principles of the Austrian School of Economics and the Ludwig von Mises Institute [5]. Schiff frequently appears as a guest on CNBC, Fox News, and Bloomberg Television and is often quoted in major financial publications.

IMHO September 29, 2008 at 12:53 am

@ Gaurav Ahuja

“He seems to think Americans buying more from non-Americans is something inherently bad for the American economy.”

In “Crashproof” Schiff expresses concerns about us becoming too dependent upon the manufactured goods of other countries, because he feels that as the middle class in developing countries continues to grow, fewer goods will be made available to us. Therefore, he feels that it’s in our best interest to keep producing manufactured goods.

Keith September 29, 2008 at 7:35 am

How can he cite the trade deficit as a problem? All I’ve ever heard from Austrians is that the trade deficit is irrelevant.

Michael June 30, 2010 at 8:47 am

See: Triffin dilemma.

Dick Fox September 29, 2008 at 8:38 am

This title is wrong. It should read, “Peter Schiff better supply sider than Art Laffer.” Laffer’s appeal to consumption as evidence of economic strength is pure demand side. Schiff’s point about saving and production is central to supply side.

Chris September 29, 2008 at 9:03 am

I think he handled the 2 income family issue poorly. If both love their work then that’s one thing. Working to support consumption is another. Woman or man providing the income is not the issue. The reporter implied that he was sexist.

I’m anxious for a response to Keith’s question above. I too thought the trade deficit was irrelevant, just as is the trade deficit I have with the grocery store.

Ron September 29, 2008 at 9:07 am

I’ve read “Crash Proof” as well, and his economics are 90% Austrian. He even goes so far as to quote Mises in the book. He is bent about the trade deficit, but he frames it in terms of dollars held by foreign entities, and how those dollars will eventually come flooding back into the U.S. as the prices of imports vs. exports swings back the other way. As domestic goods become cheaper, foreigners will start importing more of our cheap products, resulting in hyperinflation of the dollar.

One argument he makes, though, is that China, for instance, is spending all its resources servicing American consumer demand and not focusing on domestic demand. He claims that they are poorer for it. At the same time, though, he claims that we’re poorer for not exporting enough goods. You can’t have it both ways. Either it’s better to import more than you export, or you’re not. I suppose maybe he’s saying trade should be “balanced”, but there’s no reason in a free market that would or should ever happen.

Due Stradi September 29, 2008 at 10:30 am

Listening to Laffer reminded me of a quote:

“Positive, adj.: Mistaken at the top of one’s voice.”
–Ambrose Bierce

Stanley Pinchak September 29, 2008 at 11:40 am

Wouldn’t trade need to be balanced at least in the long term average under a specie standard? The resulting gold flows under a net import or net export economy, would tend to adjust the price of the different origin of goods in a manner opposite to the current trade balance. Or am I missing something here?

Ron September 29, 2008 at 11:49 am

That’s a good point, Stanley. It may very well be that imports and exports would tend toward a balance in terms of gold. Someone smarter than I will have to confirm that, though.

Oil Shock September 29, 2008 at 12:01 pm

I agree with Stanley. Could it be that the trade deficits between 1600 and 1800, that Laffer was talking about, were due to the large scale immigration to the United States?

8 September 29, 2008 at 1:02 pm

Trade deficits are just symptoms of underlying behavior. What matters is how they come to be.

Many railroads were built with British capital and British capital goods. America was borrowing to finance expansion with imported capital goods.

Now Americans are importing foreign capital to buy consumer goods.

fundamentalist September 29, 2008 at 1:27 pm

Stanley Pinchak: “Wouldn’t trade need to be balanced at least in the long term average under a specie standard?”

As gold left the country for imported goods, the money supply would fall, causing prices to fall. Remember that the amount of money in a country is totally irrelevant. Rapid changes in the amount of money is a different story. But mild changes in the amount of money will cause prices to adjust and commerce will continue as usual. However, there would be some tendency to equalization of trade because as prices fell in the US, our goods would become cheaper to foreigners and we would eventually export something. Paper money keeps our prices from falling and prevents this adjustment process.

In addition, if a country imports a good because it is cheaper than a domestically-produced one, then the cheaper imported good will increase wealth in the home country. The imported good will free up money that can be invested in new businesses or boost the sales of existing businesses.

Take oil as an example. If we were on a gold standard, would the US be richer or poorer importing over half our oil? We would be richer by far, because we can’t produce enough oil on our own, which would make oil very expensive if we didn’t import some. By importing oil, we save huge amounts on the purchase of oil. In turn, we refine oil and turn it into transportation services or plastic goods worth far more than the price of the oil.

The above assumes that all countries in the world are equally free and on a gold standard. If the US has greater freedom and a more dynamic economy than the rest of the world, as it did in the 1800′s, then other people in the world will want to invest their savings in the US and we’ll have a net increase in gold and the money supply will increase.

The bottom line is that a gold standard won’t necessarily cause balanced trade. It might if all countries were exactly alike. But if they differed much, the variables that need to be considered.

Ball September 29, 2008 at 8:14 pm

“With lower interest rates you can buy more. It’s great!”

What a tool.

“I’ll bet you a lot more than a penny!” Ha, so would I Peter.

Marla Herbert October 2, 2008 at 5:24 pm

I only want financial advice from Peter Schiff now. Boy, Laffer could not have been anymore wrong on his prediction. Furthmore, he could not answer the question, “When the Housing Boom goes away, what will happen?” He just says that it will be filled up by something else…… Well Laffer, what do we “fill it up with now?” This guy is an an idiot! If this subject was not so close to home as to what Schiff depicted, I might laugh right now……

Graham Sharkey May 25, 2010 at 2:49 pm

Can someone point me in the direction of some literature on Austrian thought on supply-side economics?

Thank you in advance

stupid Art Lafer November 24, 2011 at 11:37 pm

Peter is always right

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